Good opportunity to buy!? Morgan Stanley: Under this important test, gold shows elasticity and the stock market faces the risk of callback

24K99 News Morgan Stanley Wealth Management said that in the case of the recent surge in real interest rates, gold seems to be flexible, providing buying opportunities in the medium term.

Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, said in a report on Monday (August 28): "Like the stock market, the stock market continues to be immune from the negative impact of the rise in real interest rates, while gold prices, contrary to the trend of real interest rates and the dollar index, remain extremely resilient."

"In terms of the medium-term outlook, we are buying gold because of weak or falling interest rates," she wrote.

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The inflation adjusted real interest rate has risen sharply recently. Although this has weakened the stock valuation this month, the US stock market has maintained a strong rise so far this year.

"The surge in real interest rates is driven by multiple factors, which may force investors to consider the valuation risk of the mechanism of" higher interest rates in a longer period of time "," Shalett said. "The 10-year real interest rate rose to more than 2.0% last week, the highest level since the financial crisis."

The real interest rate of 10-year US treasury bonds is "the basic 'risk-free' benchmark supporting most valuation calculations in the capital market", which has jumped nearly 0.5 percentage points in the past six weeks. According to the report, this rise seems to be "at least to some extent sustainable", which is driven by factors such as higher than expected issuance of government bonds, credit rating downgrades, strong economic growth and policy uncertainty.

At the same time, according to the latest data from FactSet, the SPDR Gold Shares ETF GLD has risen by more than 5% so far this year, while it has fallen by about 2% this month. According to the most actively traded contract, gold futures fell 3.2% so far in August and rose 6.5% so far this year.

Shalett said that the rebound in gold prices may be related to the view that the rise in interest rates is temporary and "purely technical". Another theory is that gold "stands as an alternative currency when the US dollar is vulnerable to inflation and the inflation of deficit financing expenditure depreciation".

Although the US stock market was affected by the rise in interest rates in August, it still kept rising this year.

According to the latest data from FactSet, the Dow Jones Industrial Average rose by more than 4% in 2023, the Standard&Poor's 500 Index rose by about 15.5%, and the Nasdaq Composite Index, which is dominated by technology stocks, soared by nearly 31%.

Shalett said: "The upward surprises of economic growth, inflation progress and profitability will bring returns to the bulls in 2023." But she warned that "historically, the real interest rate of 1.5% to 2.0% is closely related to the P/E ratio of 17 times, while the current expected P/E ratio is 20 times."

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